How to Set Your Freelance Rate
Setting a freelance rate by copying what someone else charges is a fast way to underprice yourself. A rate that works has to cover what you need to earn, what your business costs, and the fact that only part of your week is billable. Here is how to build one from the ground up.
The short version
Your rate is not your salary divided by 2,080 hours. You do not sell every hour you work, and the gap between those two numbers is where most freelance pricing goes wrong.
- Start from the total: the income you want to take home plus what the business costs to run.
- Divide by billable hours, not working hours: weeks off and non-billable work both shrink what you actually sell.
- The size of the error: dividing by every hour of the year gives $39 where the honest answer is $64.
- Treat the result as a floor, the least you can charge and still hit the goal. Value sets the price above it.
- Then measure: almost everyone overestimates their billable share, and the real number usually argues for a raise.
Start from what you need to earn
Begin with a yearly income goal - the amount you want to take home before tax. Then add your annual business costs: software, hardware, insurance, subcontractors, and taxes you set aside. Together these are the revenue your billable work has to produce.
Keep the two separate in your head. The income goal is what the year is for; the costs are what it takes to get there. Mixing them is how freelancers end up funding their own tooling out of what they thought was profit.
Account for non-billable time
You cannot bill every working hour. Sales, admin, learning, and invoicing all take time you are not paid for directly. The share of your time that is billable is your utilization, and it changes everything.
If you work 40 hours a week but only 60% is billable, you are selling about 24 billable hours, not 40. Spreading your income goal and costs across 24 hours gives a very different rate than across 40. If this split is new to you, read billable vs non-billable hours first.
The size of the mistake
Take the defaults in the Freelance Rate Calculator: a $70,000 income goal, $12,000 of business costs, a 40-hour week, six weeks off, and 70% of the week billable. That is $82,000 of revenue to produce.
Based on a $70,000 income goal, $12,000 in annual business costs, 40 hours a week, six weeks off, and a 70% billable share. Change any input in the calculator to see your own figures.
The first and third numbers describe the same year and the same person. One of them ends in a shortfall of roughly $32,000. This is why the billable share is not a detail to estimate loosely - it moves the rate more than almost anything else on the page.
Do the math
Rather than guess, put the numbers in:
- The Freelance Rate Calculator turns your income goal, costs, weeks off, and billable share into the hourly rate you need to charge.
- The Hourly to Salary Calculator sanity-checks that rate against an equivalent annual salary, so you can compare freelancing to a job offer on the same terms.
- The Freelance Take-Home Calculator shows what survives tax and contributions, which is the number that actually reaches your account.
Treat the result as a floor - the least you can charge and still hit your goal - not a ceiling.
Charge for value, not just cost
The floor keeps you solvent. What lifts you above it is value: specialization, speed, proven outcomes, and demand. Two freelancers with the same costs can charge very differently because one solves a more expensive problem. Cost sets the minimum; value sets the price.
A practical test: if your rate is the only thing a prospect asks about, you are being bought on cost. If they ask about outcomes, timelines, or whether you have solved this before, you have room above the floor.
Track reality and adjust
The biggest unknown in the formula is your real billable share. Most people overestimate it. Record billable and non-billable time for a few weeks and you will see the true number - and often a case for raising your rate.
Two moments are worth putting in the calendar: a check after your first tracked month, when the billable share is finally evidence rather than a guess, and a review each year, when your costs and your value have both moved and your rate probably has not.
How do I calculate my freelance hourly rate?
Add your target take-home income to your annual business costs, then divide by the billable hours you actually sell in a year. Billable hours are your weekly hours times your billable share times the weeks you work after time off, which is usually far fewer hours than a full-time year contains.
Why can I not divide my salary goal by 2,080 hours?
Because you do not sell 2,080 hours. Weeks off remove some, and sales, admin, learning, and invoicing remove more. On a typical setup the honest divisor is closer to 1,300 hours, which is why dividing by the full year produces a rate around 40% too low.
What billable percentage should I assume?
Between 60% and 75% is a common working range for solo freelancers, but assume nothing for long. Track billable and non-billable time for a few weeks and use your own figure, because the estimate is where most rate calculations go wrong.
Should my freelance rate be higher than an equivalent salary?
Yes, and by more than most people expect. An employer pays for unbilled hours, paid leave, equipment, software, insurance, and employment contributions. As a freelancer you fund all of those from your rate, which is why the hourly figures are not comparable directly.
How often should I raise my rate?
Review it yearly, and after any change that moves the inputs: rising costs, a narrower specialization, or a stretch of full booking. A waiting list is a pricing signal, and a rate that has not moved in three years has effectively fallen.
Should I charge hourly or a fixed project price?
The hourly figure is worth calculating either way, because a fixed price is only safe when you know what an hour has to earn. Quote fixed prices from tracked hours on similar past work rather than from optimism, and keep tracking during the project so the next quote is better informed.
Sandtime.io makes that easy: mark billable and non-billable time as you work, and see utilization and realization in plain reports, without screenshots or surveillance. A freelancer timesheet is a fine place to start. It is free for unlimited users - browse the free tools and templates and set your next rate on evidence, not a guess.
About the contributors
Przemysław Zalewski
Sandtime.io engineer and Sanddev team member who reviews product accuracy, technical details, sources, and editorial quality.
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